TMI Blog2014 (9) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee’s submission was that the provisions for diminution in the value of investment was not claimed as deduction in earlier years and therefore its reversal need not be taxed in the year under review – the chart was not before AO and CIT(A) - the factual aspect of the chart needs verification – thus, the matter is remitted back to the AO – Decided in favour of revenue. - I.T. A. Nos. 1169 & 1288/AHD/2011 - - - Dated:- 9-1-2014 - SHRI D.K. TYAGI, J.M. AND SHRI ANIL CHATURVEDI, JJ. For the Appellant : Shri Sanjay R. Shah For the Respondent : Shri P.L. Kureel, Sr. D.R. ORDER Per: Anil Chaturvedi: 1. These 2 appeals, one filed by the Revenue and the other filed by the Assessee, are against the order of CIT(A)-VIII, Ahmedabad dated 17.01.2011 for A.Y. 2007-08. 2. The facts as culled out from the material on record are as under. 3. Assessee is a company stated to be engaged in the business of fund management and treasury finance business for Government of Gujarat enterprises. Assessee electronically filed its return of income for A.Y. 07-08 on 29.10.2007 declaring total income of ₹ 14,80,08,673/-. The case was selected for scrutiny and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Assessing Officer on account of depreciation on leased assets, without properly appreciating the facts of the case and the materials brought on record by the Assessing Officer. We first take up Assessee s appeal in ITA No. 1169/AHD/2011 6. Ground no. 1 and its sub grounds are in relation to disallowance of expenses under section 14A of the Act. 7. During the course of assessment proceedings, A.O noticed that Assessee had earned total exempt income of ₹ 8,36,85,739/-. The Assessee was asked to explain as to why no disallowance under section 14A of the Act be made to which Assessee interalia submitted that it had not incurred any expense in connection with the earning of income which was exempt for tax. It was also submitted that the investments were made out of own funds and not borrowed funds. The submission of the Assessee was not found acceptable to the A.O. A.O was of the view that it cannot be accepted that no amount of administrative and managerial machinery has been devoted to handle tax free investment when the nature of business itself was of investment and most of the investments were made in tax free instruments. According to A.O there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant and binding- sec. 14A applies to all heads of income and aims at disallowing expenditure incurred in relation to income not forming part of total income even though such expenditure may be allowable under any other provision, e.g., s. 36(1)(iii) Sec. 14A being a special provision shall prevail over general provisions -purpose of sub-ss: (2) and (3) of s. 14A is to determine the amount of expenditure incurred in relation to exempt income and no substantive liability is imposed by these sub-sections Rule 8D inserted in the IT Rules, 1962, prescribes the method by which AO has to determine the disallowance in terms of sub-ss. (2) and (3)- Sub-s. (1) of s. 14A itself being clarificatory and retrospective, sub-ss. (2) and (3) providing for mechanism to give effect to subs. (1) cannot be construed as prospective. The relation has to be seen between the exempt income and the expenditure incurred in relation to it and not vice versa-what is relevant is to work out the expenditure in relation to the exempt income and 'not to examine whether the expenditure incurred by the assessee has resulted into exempt income or taxable income-Expression 'in relation to in sub-s(1) of s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e far in excess of the investments that yield tax free income and accordingly the presumption is that the entire investments have been made from own funds and not borrowed funds and therefore no disallowance of on account of interest is justified in the present case. He further submitted that the provisions of Rule 8D came into force on 24.03.2008 and are applicable from A.Y. 08-09 and therefore also the provisions of Rule 8D are not applicable for the year under consideration. He placed reliance on the decision of Hon ble Bombay High Court in the case of Godrej Boyce manufacturing Company Ltd., Reliance Utilities and power Ltd. 313 ITR 340 Bombay, CIT vs. UTI Bank Limited 32 Taxman. com (Guj.) and CIT vs. Gujarat Industrial Investment Corporation Ltd in Tax Appeal No. 492/AHD/2012 (Gujarat). He further submitted that on similar facts and circumstances for A.Y. 05-06 06-07 in Assessee s own case the Hon ble ITAT had set aside the matter to the file of A.O. With respect to disallowance of administrative expense he placed reliance on the decision of Hon ble Kerala High Court in the case of Catholic Syrian Bank Ltd. 9 Taxman. com. 148 wherein it has been held that no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree reserves amounting to ₹ 86.07 crores, depreciation fund at ₹ 66.77 lakhs and provision for diminution at 10.77 lakhs. Therefore treating the entire investment as out of borrowed funds ignoring the availability of own fund is not supported by factual links. Therefore, in the given circumstances without any supporting material it cannot be held that the entire interest cost worked out by the A.O. is attributable to the interest free income. It would be logical to allow credit of the funds available to the appellant during relevant period for working out the interest cost on the investment in tax free securities. Since, the investment in tax free securities has been shown at ₹ 91.45 crores as against own funds to the tune of ₹ 86.98 crore, the interest on excess investment is required to be disallowed u/s. 14A of the Act accordingly. The A.O. is directed to work out such interest on ₹ 91.45 crore - ₹ 86.98 crore (after taking into account investment in Gross Block) accordingly. The disallowance to that extent is, therefore confirmed. For A.Y. 06-07, he relied upon the order of Special Bench ITO vs. Daga Capital Management Pvt. Ltd. 312 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sputed fact that the administrative expenses have been incurred on tax free securities. The AO disallowed pro rata expenses at ₹ 92,97 lakhs as per the working given by him and referred above. The claim of administrative expenses and other expenses amounted to ₹ 9,91,10,622/- and not ₹ 92,97,2507-. If it is considered that 10% disallowance is to be made out of administrative and other expenses, then total disallowance would amount to ₹ 99,11,062/-. Since learned CIT(A) has restricted the disallowance to ₹ 9.91 lakhs, which is only about 1% of the total claim and not 10% and revenue has not filed any appeal against this working, the disallowance is to be treated as most reasonable, and no interference is called for in the impugned order on this issue. This ground of the assessee is rejected. Rule 8D is applicable from the A.Y. 08-09 as held by Hon'ble Bombay High Court in case of Godrej Boyce Manufacturing Co. Ltd. v. CIT (2010) 234 CTR 001. 8. We find that in the present year, the facts are not available, accordingly, this issue is being set aside to the file of the Assessing Officer to follow the decision taken in assessee's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Hon'ble Bombay High Court in the case of Kotak Mahindra Finance Ltd. v/s DCIT 265 ITR 114 wherein the Hon'ble Court held that we do not find any merit in this appeal. There is a basic difference between lease and hire . This difference is borne out by the basic difference in the meaning of the expression property and the expression possession . A transaction of hire is essentially a contract of bailment of a vehicle. In the case of a hire, only a licence is given to the hire to use the vehicle for a temporary period the vehicle so hired (see Melluish (Inspector Taxes) v. B.M.I. (No.9) Ltd. (1996) 218 ITR 547 (HL). In the case of hire, the hirer has an option to buy the equipment which is one of the main distinguishing features between the words hire and lease . However, it is argued on behalf of the assessee that for the purposes of the above entry, the word hire and the word lease should be read as equivalent. We do not find any merit in this argument. The entry, read as a whole, states that the assessee must run the vehicle on hire or that the assessee must carry on the business of running the vehicles on hire. In this case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 28.1212. The Co-ordinate Bench decided the issue in favour of the Assessee by holding as under:- 16. We have heard the rival contentions and perused the material on record. The assessee had not sold and leased back the new assets during the year, the depreciation claimed by the appellant on written down value of sale and lease back assets. The identical issue in assessee's own case in ITA No. 2763/Ahd/2007, wherein Revenue's appeal had been dismissed by the Co-ordinate 'C' Bench, Ahmedabad for A.Y. 04-05. The similar issue was considered by 'C' Bench, Ahmedabad in assessee's own case in ITA No. 865/Ahd/2006 ITA No.1927/Ahd/2007 for A.Y. 02-03 and held that sale and lease back is a continuing transaction addition admitted by both the sides. Respectfully, following the Tribunal's decision, we dismiss this issue of Revenue's appeal. The revenue had not distinguished the findings of Coordinate Bench given for earlier year when transactions are same and depreciation claimed on written down the value of the same assets on sale and lease back transaction, then, we have to follow the earlier decision otherwise material facts ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the year under reference accordingly. However, in case the provision for bad and doubtful debt as claimed by the appellant in A.Y. 2005-06 is allowed to it in future at any stage, then the impugned amount shall be taxed in the year under reference accordingly. 19. Aggrieved by the order CIT(A), Revenue is now appeal before us. 20. Before us at the outset, the ld. A.R. submitted that the ground needs to be decided against the Assessee for the reason that the Assessee has already been allowed relief in A.Y. 05-06. He pointed to the relevant finding of the Tribunal which was placed at page 77 of the paper book. The ld. D.R. on the other hand did not object to the submission of the Assessee. 21. We have heard the rival submissions and perused the material on record. Before us since ld. A.R. has fairly conceded that the issue needs to be decided against the Assessee since it has already got relief in earlier years, we therefore uphold the addition made by A.O. In the result this ground of Revenue is allowed. Ground no. 2 is with respect to deleting the disallowance made on reversal of provision for diminution in the value of investment. 22. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed as deduction in earlier years and therefore its reversal need not be taxed in the year under review. Before us ld. A.R. has also submitted a chart showing the provisions made in different years and the reversals of the same. We find that this chart was not before A.O and CIT(A). We are therefore of the view that the factual aspect of the chart needs verification. We therefore remit the issue to the file of A.O to verify the submissions of the Assessee and thereafter decided the issue as per law. Needless to state that A.O shall grant adequate opportunity of hearing to the Assessee. In the result this ground of Revenue is allowed for statistical purposes. Ground no. 3 is with respect to deleting the disallowance on lease assets. 26. Before us both the parties submitted that this ground is interconnected with ground no. 2 of Assessee s appeal. 27. We have heard the rival submissions and perused the material on record. Since the issue in the present ground is interconnected with ground no. 2 of Assessee s appeal and since ground no. 2 in Assessee s appeal hereinabove has been decided in favour of the Assessee this ground of Revenue is dismissed.28. In the result the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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